This is part of the MaRS BioEntrepreneurship series http://www.marsdd.com/bioent/apr16 Speaker: Joanne Harack, Snelgrove Associates * Founder entrepreneurs: from lab to leadership * Organization development framework: from spin out to emerging company * HR planning to match the business plan: short- and long-term needs * Getting the basics right: payroll, taxes, and related auditable processes * Intellectual property: from University to business * Hiring versus outsourcing * Recruitment/selection tools and techniques * Compensation philosophy and structure * Employment agreement basics * Investors, Board and SAB * Organizational culture To download an audio file of this presentation, please go to : http://www.marsdd.com/bioent/apr16

1. CVs and VCs
Managing the People/Profit
Equation
Joanne E. Harack
MaRS BioEntrepreneurship Series,
April 16, 2007 1

2. Agenda
Background to the biotech industry
!
Personal challenges for founders
!
Organizational development framework
!
Building organizational capability
!
HR functional expertise
!
Key processes
!
Moving ahead
!
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3. Creating Science Businesses
A VC’s view:
!
“Take people, ideas and money and mix.”
A CEO’s view:
!
“Biotechnology is about profit and passion.”
An employee’s view:
!
“These companies provide incredible learning
opportunities – if you can take it.”
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4. Evolution of Biotech (Life
Sciences) Industry
Biotech companies have emerged via a
!
combination of innovation and
entrepreneurship
A university researcher and a venture
!
capitalist formed Genentech in 1976
1980s and early 1990s – new IPOs followed
!
Genentech model
Late 1990s-now – consolidation and blurring
!
of biotech/big pharma and search for new
models
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5. What’s Unique about the
Biotech Industry?
Highly regulated
!
Priority on science discovery
!
Reliant on VC financing
!
High Value on IP/patents/science
!
Many influencers: FDA, healthcare,
!
reimbursement, patients/consumers
Long /complex product to market cycle
!
Continuity of thought over extended time
!
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6. What are Conventional Biotech
Companies Like?
Small and mid size companies just
!
focused on survival, not best OD
practice – recruitment of leaders
Accountability to investors/stockholders
!
& need for measurements
Philosophical dilemma of researchers
!
–academic to business environment
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7. Typical Organization Dynamics
Informal rather than structured career
!
development
Integration across disciplines
!
Teamwork
!
“Can do” attitude: intellect +
!
pragmatism
Professional “HR” functional expertise
!
lacking
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8. Catbert, Evil HR Director
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9. From Lab to Leadership
The science of business/the business of
!
science
Science Business: Gary P. Pisano
!
Businesses creating science are
!
fundamentally more complex than those
using science
Unique personal and organizational
!
challenges
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10. Personal Challenges for
Founder/Entrepreneurs
Telling the story
!
Convincing initial investors
!
Selling the concept
!
Commercial capability
!
Recruiting the team
!
Current and future capability
!
Letting go
!
At what point in the company’s growth
!
does my role change?
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11. Serial Founders
Telling the story
Letting go
CYCLE OF
CHALLENGE
FOR SERIAL
FOUNDERS
Selling the
Recruiting/building
Concept
the team
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April 16, 2007 11

12. Intellectual Property: An HR
Perspective
Paradigm shifts:
!
Academic “publish/disseminate” vs.
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corporate “keep secret/appropriate”
Individual discovery vs. corporate asset
!
Assignment of inventions to the company
!
Very few academic scientists are willing/able
to make the shift on a permanent basis
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13. Founder to CEO
Raising and managing finances
!
Recruiting and building a team
!
Creating the corporate culture
!
Determining short, mid and long term
!
goals
Clearly communicating goals to the
!
Board and employees
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14. Stages of Organizational
Development
Phase 3
Phase 2
Success/ Late
Complexity Transformation – or Death!
Early
Phase 1
Time/Effort
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15. Phase 1 Organization
Survival oriented
!
Highly entrepreneurial
!
Fast mover, adaptable and changeable
!
Perpetually cash starved
!
Risk taker
!
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16. (Early) Phase 2 Organization
Demonstrated successes
!
Efficiency and effectiveness
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Systems, procedures oriented
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Management focused versus
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entrepreneurial
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17. (Late) Phase 2 Organization
More meetings and task groups
!
Occupied with enshrining and repeating
!
known success patterns
Ignore or reject innovation outside of
!
the “proven” success pattern
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18. Phase 3 Organization
Close to customers and market
!
Searching for innovative solutions
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Adaptable, changeable, “reinventing”
!
itself
Quality focused internally and externally
!
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19. HR Priorities at Each Stage
Recruitment
!
Rewards and Recognition
!
Employee engagement
!
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20. Questions to Answer
What is the key HR driver in the
!
business plan?
How will we grow the company?
!
What do we want to be known for?
!
What will it take to succeed?
!
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21. What is the key HR driver in
the business plan?
In the heyday of dot.com companies, mass
!
hiring was typical; turnover was also high and
rapid. This kind of hiring is not appropriate in
a business driven by breakthrough science.
Biotech business plans do not typically have
!
“hire 40 scientists” as business milestones.
If your key milestone is clinical, you need
!
people who know how to get to the clinic.
What specific events will trigger hiring for the
!
company?
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22. How will we grow the
company?
Two approaches:
!
Hire the ideal management team and they “hire
!
down” the rest: in very well capitalized companies
the conventional wisdom is to hire the
management team first, but you have to be
prepared to “over hire” and fire later
Hire key positions/individuals and fill in the rest
!
later: less well funded companies fill out a partial
scientific “swathe” to demonstrate success quickly
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23. What will it take?
If taking the “top team down” approach, the
!
executives MUST be able to act as individual
contributors (you do not want a senior team
of “delegators”)
If using the “key positions” approach,
!
everyone in the company must be
comfortable with ambiguity, role overlap
Appropriate balance of opportunistic and
!
planned hiring
Compensation philosophy and structure
!
should reflect the value proposition
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24. Scientific Advisory Board
Timing & leadership
!
Charter: how do you want to use the SAB?
!
Role: advisor to the development process;
!
typically report to the head of development;
do not play an operating role
Value: facilitate academic collaborations;
!
provide sanity check on the science
Rewards: equity or honorarium
!
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25. Board of Directors
Formal Charter and roles; fiduciary
!
responsibility
Investors play a major role (choose
!
them carefully!)
Internal vs. external directors
!
Governance: private vs. public
!
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26. Clinical Advisory Board
Focused on clinical outcomes – not the
!
science per se; predominately M.D.s
Must report to the CEO (or head of
!
regulatory/clinical) usually with a formal
relationship to the Board (ethical and liability
oversight)
Typically created at the pre-clinical discovery
!
phase
One or two members may serve as
!
consultants/advisors to CEO or Board prior to
formation of the CAB
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27. HR Functional Expertise: Hired
In or Outsourced?
In general, dictated by:
!
Existing expertise, previous experience and/or comfort level
!
of CEO
Volume (tasks, employees)
!
Degree of difficulty
!
Objectivity required/desired
!
Discrete functional expertise often added at Phase 2
!
(or 30+ employees): HR functions that have been
delegated to others are then integrated into the HR
function
If discrete HR function is present in the early stage,
!
the incumbent performs additional roles
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28. HR Functional Expertise: Hired
In or Outsourced? (cont.)
Most commonly outsourced (Phase 1
!
organizations):
Payroll: ADP or Ceridian
!
Recruiting of senior leadership, including
!
Directors: Executive Recruiters, specialized
search firms
Employment contracts; ESOP; IP
!
assignment documents: law firm
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29. HR Functional Expertise: Hired
In or Outsourced? (cont.)
Irrespective of whether the expertise resides
!
within or outside of the firm, internal
accountability must be assigned
“Outsourcing” does not mean delegating all
!
responsibility or eliminating commitment of
time
Failure to manage outsourced functions in a
!
coordinated manner from the beginning
>rework, inconsistencies and unnecessary
expense later!
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30. Recruitment: Talent
Acquisition
Recruiting/selection is both an “art” and a
!
“science”
“Would you date anybody? Selection
!
matters!” Piers Steel, University of Calgary
People are the fundamental building block of
!
business growth and competitive advantage
no matter how you choose to build out the
organization
Logistics of the recruiting process require
!
frequent “refreshing” as organizations
develop
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31. Talent Acquisition: the
Paradox
In annual surveys, 85% of executives
!
across mature industries say that their
companies do not have enough talent
or are chronically short of talent; yet -
CEOs report spending less than 10% of
!
their time on talent acquisition and
development.
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April 16, 2007 31

32. Talent Acquisition: Some
Challenges
Candidates in general are harder to find,
!
more selective and difficult to “land”;
Recruitment of Directors has become more
!
difficult (demographics, competition, personal
liability);
Demographic profiles and immigration are
!
increasingly important;
Global “war for talent;”
!
Mistakes are costly.
!
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33. Recruiting Process
Sourcing
!
Evaluating
!
Selling
!
Closing
!
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34. Sourcing
Goal: to reach and connect with highly
!
qualified candidates who aren’t looking for a
job.
At the right sites.
!
From the right people.
!
In the right way.
!
quot; Build your recruiting practices so that people
seek out your organization.
quot; Work with recruiters who understand your
value proposition, will negotiate rates, and
can represent you credibly
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35. Evaluating
Understand the job/role
!
Interview with a team; prepare ahead
!
of time
Use behavioral interviewing
!
Perform “due diligence” - references
!
Collect feedback quickly
!
For senior hires, consider formal
!
assessment (e.g. ghSmart)
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36. Selling
The best talent are very discriminating
!
seekers of information, and are hard to
recruit
Focus on the right motivators: (advantages,
!
benefits, capabilities, challenges)
Sell the candidate – not the company
!
Ensure fit with your culture as well as the job
!
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April 16, 2007 36

37. Selling (cont.)
Who we are: vision, mission and values
!
Where we came from: the lore
!
Where we are going: the lure
!
HOW THE CANDIDATE FITS OUR
!
COMPELLING FUTURE
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April 16, 2007 37

38. Some Possible Value
Propositions
High performance “winner” in our niche
!
Big risk/big reward
!
Therapeutic breakthrough that saves
!
lives (idealist)
“Lifestyles”
!
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April 16, 2007 38

39. Closing: The Offer Letter
The simpler the better
!
Executives
!
Others
!
Timing and timeliness
!
Formal orientation commences well
!
before arrival
Elicit feedback
!
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40. Compensation philosophy and
structure
There is no “best way” to structure total
!
compensation
The kind of organization you are building will
!
dictate the relative emphasis placed on:
Base salary
!
Bonuses
!
Equity
!
Benefits/intangibles
!
quot; The market and how you relate to it will
dictate salary benchmarking
MaRS BioEntrepreneurship Series,
April 16, 2007 40

41. Compensation philosophy and
structure (cont.)
Most early stage companies fail to think through a
!
compensation philosophy
Most early stage companies do not think through
!
how to structure the ESOP – the investors/Board will
be focused on the senior team and the overall cap
structure.
Without conscious, deliberate planning, the option
!
pool allocated to employees can be depleted too
quickly.
Compensation issues typically surface with the third
!
employee!
It is worthwhile seeking external professional advice
!
(consulting, surveys, industry associations.)
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April 16, 2007 41

42. Performance Management
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43. Performance Management
Goal Setting and Review Process
!
Keep it REALLY simple – early stage companies change too
!
quickly to make investment in complicated systems either
necessary or practical
Keep the expectations clear – the goal is to align individual
!
and corporate goal achievement, not a “scientific”
measurement of each employee’s contribution
Remember that it is really about two way communication
!
and feedback – which should be ongoing, not an annual
event
It is not about money! Consider separating annual salary
!
increase decisions from the review process
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April 16, 2007 43

44. Creating Engagement
Turnover in biotech companies is high
!
(>20%)
Below the management team most
!
vulnerable; more problems of fit and
culture
Variations across organizational levels
!
and functions
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April 16, 2007 44

45. Creating Engagement (cont.)
quot; Components:
Fit and belonging
!
Status and identity
!
Emotional reward
!
Economic interdependence
!
Trust and reciprocity
!
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46. Creating Engagement (cont.)
Treat people as partners – not
!
“resources” to be managed
Communicate, communicate,
!
communicate
Clean and safe physical environment
!
Opportunities for self expression
!
Coaching, counseling and confronting
!
conflict and non-performance
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April 16, 2007 46

47. Defining Organizational Culture
as the Company Grows
How does the organization see itself,
!
others, the world?
What does “good” look like?
!
What is an example of a “failure”?
!
Quality of conversation
!
Formality of feedback
!
A diagnostic is helpful
!
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April 16, 2007 47

48. In Conclusion…
Employees: Build Individual
Capability
“HR”
VCs: Build Wealth CEO: Build the Enterprise
“HR”= human and organizational capability
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April 16, 2007 48